Monsanto's Ironclad Contract - In Fear of The Dotted Line

“Monsanto’s primary reason for enforcing its patents is to ensure a level playing field for the vast majority of honest farmers who abide by their agreements, and to discourage using technology to gain an unfair advantage.” – From Monsanto’s website.

As benevolent as that might sound, make no mistake about it, Monsanto is only concerned about its bottom line (no, not farmers), which would not necessarily be a bad thing per se were it not for the aggressive enforcement of its patents, tactics which include, among others, hiring private investigators, video surveillance, demanding access to records and field inspections, as well as having a toll-free hot line provided for farmers and business owners to anonymously report violations to what farmers call the “seed police.”  And of course, there is always the threat of litigation.   (In case you wondered, according to USDA records, in 2008, Monsanto was the holder of 674 biotechnology patents.)

But that’s not all. For Monsanto, patent protection (and therefore investment protection) involves not only oppressive investigative techniques and lawsuits, but also entering into agreements with farmers that are heavily one-sided in favor of Monsanto.
Monsanto_contract

Analyzing Killer Clauses

The take-it-or-leave-it agreement contains clauses that place farmers at a great disadvantage. One does not have to be a populist to understand that the Monsanto-farmer agreements are adhesion contracts which leave farmers facing substantial liability for violations of such contracts, contamination of neighbors’ crops, or infringement of the companies’ patents.

In the case of Monsanto’s contracts, the pen is indeed mightier than the sword.

1. No Seed Saving Allowed

With this prohibition Monsanto ensures that it gets a repeat customer the next year. Never mind that it goes against the very essence of farming practices cultivated for centuries by farmers around the world. A related clause prohibits farmers from using seeds for breeding or research purposes thus ensuring that any new developments come only from Monsanto and not farmers’ innovation.

2. Inspection of Records

Monsanto’s agreements give the company access to virtually all of farmer’s records as well as the right to seek information about a farmer from third-parties, like the USDA Farm Service Agency’s (“FSA”) Summary Acreage History Report. Ordinarily, FSA information is protected by the Privacy Act but by signing an agreement with Monsanto a farmer “waives” that protection.

So the New Big Brother is teaming up with the Old Big Brother and is watching you, dear farmer.

According to Consumer Food Safety Report and Farmers’ Legal Aid Group/Rural Advancement Foundation International-USA, authors of the Farmers’ Guide to GMOs (“Farmers’ Guide”), accessing USDA’s Summary Acreage History Report and corresponding aerial photographs, helps Monsanto to determine how many bags of seed a farmer was sold and how many acres of a particular crop were planted. (As an interesting aside, given the many cited failures of the USDA that I wrote about previously, it would not be surprising if Monsanto was better at using USDA’s information on farmers than USDA itself).

More alarming is that there is no time limit on this clause. In other words, it is possible that Monsanto could attempt to obtain and review a farmer’s documents at any point in the future, even after the farmer stops growing Monsanto’s seeds.

3. Monsanto – an Arm of the EPA?

For plants that are genetically modified to produce pesticides in their cells, the Environmental Protection Agency (“EPA”) requires that such farmers establish “refuges” of non-GM varieties that do not contain pesticides to be grown along side with the GM crops. The purpose of establishing such refuges is to act as a deterrent to the development of superbugs that may have become resistant to the pesticide inside the GM crop.

Putting aside the question of whether such refuges are successful at deterring the development of superbugs, the fact remains that ordinarily, EPA monitors compliance with the refuge requirement. The Farmers’ Guide, however, reports that Monsanto’s agreement with farmers delegates the EPA’s monitoring authority to the company. This delegation comes with a right to inspect fields.

Whether Monsanto enforces the refuge requirement is questionable (even if the company is fined $5,000 per violation of the refuge requirement) as there is little incentive to enforce that which does not contribute to its bottom line.

Even if Monsanto was to enforce this requirement, however, Monsanto’s involvement in the enforcement just feels wrong. Monsanto the seed producer is also the rule enforcer? It is an unwise policy decision and from a purely government PR perspective, having Monsanto, with its past and current controversial practices, act like an arm of the government, policing and controlling farmers to ensure compliance with the law is unacceptable.

4. Limiting Monsanto’s Liability and Damage

Monsanto’s contract also discourages farmers’ challenges to the performance of Monsanto’s products, say, lower than expected yields, by limiting the recovery to the price paid for the quantity of the seeds, or, at Monsanto’s election, replacement of the seed.

While the enforceability of such clauses remains questionable, as the Farmer’s Guide indicates, Monsanto will go to court arguing that by signing the agreement a farmer agreed to be bound by these limitations.

5. Choice of Law, Forum Selection Clauses and Mandatory Arbitration

Despite the fact that Monsanto could afford hiring a top-notch legal team in any state, its agreement with farmers nonetheless specifies that (other than cotton), legal disputes are to be resolved according to the laws of the state of Missouri (Monsanto headquarters) and not the state of the farmer and such disputes must also be resolved in a particular court, in this case, the Missouri District court. Such clauses, although common in many contracts and routinely upheld by courts, nonetheless create an enormous suing disincentive, particularly for farmers in other states, and places an extra heavy burden on farmers when Monsanto sues them for alleged violation.

And when this clause is combined with Monsanto’s self-created limitation on damages to price paid for the commodity or replacement of seeds, it becomes clear that Monsanto has virtually isolated itself from any suit by farmers for performance based reasons.

Contract clauses concerning cotton requires farmers to resolve the disputes through a binding arbitration to be held in the capital of the farmer’s state. Mandatory binding arbitration is as expensive as litigation but with an additional cost of paying for the arbitrator or a panel of arbitrators, even if the contract indicates that arbitrators’ fees will be split between the company and the farmer. Additionally, as the Farmer’s Guide notes, such clauses are generally detrimental to the farmer because they limit the remedies available. Furthermore, Monsanto’s arbitration clause requires that all proceedings and results be kept confidential, thereby preventing the farmer from sharing the knowledge and insight gained with other farmers facing similar difficulties.

6. Monsanto Remedies and Damages

Monsanto is aggressive about everything, including the damages it extracts from farmers. First, Monsanto cuts violators off forever from the use of any Monsanto seed products. Given that Monsanto has a nearly monopolizing control over the seed market, having patented control over 90 percent of seeds and seed genetics and continually acquiring independent seed companies, this clause could make obtaining seeds difficult.

Next, Monsanto will seek to extract as damages injunction, attorneys’ fees, and costs of enforcing the agreement. While Monsanto attempts to contractually insulate itself from liability it may owe to farmers for poor product performance, the damages it seeks from farmers, are, with little surprise, expansive and designed to financially drain the farmer.  It is no wonder that many farmers who try to stand up to Monsanto face bankruptcies.

Attrition warfare, anyone?

Oh, and, did we mention that Monsanto considers that a farmer “accepts” the terms of the agreement when a farmer does one of two things: 1) signs the contract; OR 2) opens a bag of seeds.  That’s right, liability stems from curiosity.

There is little doubt that Monsanto-farmer contracts are fundamentally unfair to the farmers. In this case, David does not fair well against Goliath. But are such agreements also fundamentally unfair to society because, unless you grow it yourself, what the farmer grows is what you eat. In other words, while the immediate contract may be between Monsanto and a farmer, we the people are the third unrepresented party to such a contract because we end up consuming the products of this agreement. As food is the corner stone of our existence, should the government take action on behalf of us all, to prevent such an uneven distribution of rights?

Further reading:

http://www.rafiusa.org/pubs/Farmers_Guide_to_GMOs.pdf

http://www.percyschmeiser.com/MonsantovsFarmerReport1.13.05.pdf

http://www.westernfarmservice.com/pdf/Corn/2009MTSA.pdf